The primary subject matter of this case concerns a salary increase and the internal and external compensation alignment of a university. The equity-theory helps explain the conflict that exists between the faculty members.
To assist in their analysis, students are provided with a timeline of the critical events of the case and comparison compensation tables. Students are asked to answer four questions that include solutions to management issues and a recommended long-term solution. This case has a difficulty level of four. The case is designed to be taught in two class hours and is expected to require approximately three hours of outside preparation time by students.
The case depicts a business school dean's attempt to raise the salaries of seven School of Business faculty members to the 25th percentile salary level of AACSB accredited institutions. This was an important step to retain valuable employees and ensure reaccredidation in 2007. The salary proposal created an uproar among the non-business faculty at the university. They felt the School of Business professors were already among the highest paid employees at the university. To make matters worse, this situation occurred during a financial crisis as many other employees were denied raises and several employees were laid off due to budget constraints. The problem is exacerbated by the lack of a clear pay policy and by serious constraints posed by the institution budget and state funding. This case illustrates the importance of internal and external compensation alignment within an organization. The President of the university and the Board of Directors are faced with the enormous challenge of creating cohesiveness among the faculty despite their irreconcilable differences. Their actions and decisions will shape the fate of the School of Business and the overall university
THE GREEDY SEVEN
J. Stacy Adam's Equity Theory of motivation, developed in 1963, helps managers understand the importance of their employee's perception of his or her input/output ratio. These individual perceptions are formed by the employees' judgments of what constitutes a fair balance of rewards for their level of exertion on the job. Employees expect their level of compensation to be a fair reflection of their level of effort. Employees consider their education, experience, time, job duties, commitment and other factors as their input to an organization and expect a fair balance of outputs in the form of salary, benefits, bonuses, recognition or other types of rewards. Employees then compare their ratio with those of co-workers or others in the marketplace. This balance or imbalance plays a major role in the employees' morale and productivity. If employees feel that equilibrium occurs, they will be satisfied with their job and be motivated and productive. If payouts or their balance perception do not match expectations, employees will react negatively. Imagine if you had the same job responsibilities, education, and experience as your co-workers, but you recently learned that their salary was a lot higher than yours. On top of the fact, some of those co-workers were possibly going to receive a raise while your salary has not increased beyond the traditional standard of living adjustment. Would this information affect your morale and productivity? Employees who find themselves in this position have a couple of options to bring balance to their weighted situation.
In September 2002, Dr. Bill Johnson, a finance professor at Turrentine State University, was asked for the second time to apply for a department chair position at Central State University. He had been very unhappy about his current salary at TSU for a long time and was ready to make a change. He informed Dr. Mark Smith, the dean of the School of Business at TSU, about this opportunity and said that he would apply. Dr. Smith realized that several professors were also frustrated with their salary, so he immediately began working on a salary proposal to maintain TSU's competitiveness with other schools in the region. …